Microsoft, Sony bring new life to console video games

Jun. 9, 2014
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Upcoming PlayStation 4 action game "The Order: 1886" is set in Victorian-era London, and features the descendants of King Arthur's Knights of the Round Table attempting to maintain calm in the city and protect mankind. / Sony

by Brett Molina and Mike Snider, USA TODAY

by Brett Molina and Mike Snider, USA TODAY

LOS ANGELES - Rumors of the death of console video games have been greatly exaggerated.

While many observers had mobile and casual games making it "game over" for home systems, sales leaders Microsoft and Sony head into this week's Electronic Entertainment Expo with a fair bit of swagger.

Both companies will take the stage here Monday at the video game industry's biggest event in the USA, seeking to woo fence-sitting gamers with new adventures on either an Xbox One or PlayStation 4.

So far, both of those new consoles, launched within a week of each other in November, are faring well. More than 12 million PS4 and Xbox One consoles combined have been sold - double that of predecessors PS3 and Xbox 360 during the same period.

"It's surprising a lot of people. Before this generation launched, there were a bunch of skeptics who said that consoles were dead and that we're not going to see any excitement around them because of mobile and the resurgence of the PC," says Ted Price, founder and CEO of Insomniac Games. "Clearly that is not the case."

The big question is whether both devices can maintain momentum -and can Nintendo's Wii U gain some - amid a flurry of competitors, ranging from free-to-play hits such as League of Legends and Hearthstone to a wide assortment of mobile options.

"E3 will be critical in helping investors decide if the early success of Xbox One and PS4 is sustainable beyond the early adopters," says Sterne Agee analyst Arvind Bhatia.

Sony enters as the clear front-runner, selling 7 million PS4s thanks to a lower launch price of $399, compared to Xbox One at $499. Sony also "nailed the messaging at launch, which was games, games, games, and not this nebulous entertainment platform," says P.J. McNealy, an analyst at Digital World Research.

The PlayStation 4 pipeline is packed with new entries in popular series such as Uncharted and newcomers including The Order: 1886, based on King Arthur's Knights of the Round Table.

Also expected to make a cameo at E3: PlayStation Now, the Netflix-like gaming service that lets players access a library of titles for subscription or individually as a rental.

It's likely the service will focus primarily on older titles in the PlayStation library instead of the latest games, says Wedbush Securities managing director of equity research Michael Pachter. "I just don't think that any third-party publisher is comfortable offering up content for rent on PS Now."

Meanwhile, Microsoft will seek to fuel more interest in the Xbox One, despite sales of 5 million to retailers, a pace topping that of the Xbox 360, which went on to sell more than 80 million to date. For starters, it will take back that "gift," as Pachter calls what Microsoft gave Sony by pricing the Xbox One at a $100 premium over the PS4.

Next week, Microsoft hopes to fuel sales by bringing to market a new $399 Xbox One model without the Kinect. "Microsoft's really worried about a lack of momentum at retail right now, and that could continue over the summer until there's more games to get people excited," McNealy says.

To that end, Microsoft is expected to reveal new details on Halo 5: Guardians, the next chapter of its wildly popular first-person shooter series. The company may also unveil details about the next Gears of War, another action favorite.

As Sony and Microsoft duke it out, Nintendo aims to rebound from weak sales of the Wii U, which launched in 2012. Nintendo sold 6.17 million Wii U consoles to date, with only 310,000 sold during the last quarter.

Nintendo, which will display games on the E3 show floor but will skip a formal news conference, will likely lower the price of the Wii U, which starts at $300, but until there's a strong slate of games, "consumers are unlikely to respond," says Bhatia.

Speeding to the rescue is Mario Kart 8, which sold 1.2 million copies during its opening weekend May 31-June 1. Nintendo also plans to launch the fighting game Super Smash Bros. this winter, while Nintendo President Satoru Iwata said last month it will reveal collectible figurines that leverage the GamePad's near-field communications technology at E3 - a move to draft on the success of similar games such as Skylanders and Disney Infinity.

Overall, analysts are buoyed by the industry prospects. Console game sales (not including sales of game systems) fell to $8.8 billion last year, far below the $10 billion-plus years of 2009-2011.

But sales of games for consoles are expected to climb to $9.5 billion this year and reach $11.5 billion in 2018, according to consulting firm Pricewaterhouse Coopers. "The evolution of the consoles and the new technology creates the demand for new purchases," says PwC's Sean De Winter.

Helping drive the uptick are digital downloads of full games, extra levels and other upgrades. Global sales of console games are expected to increase to $2.5 billion this year, up from $2 billion in 2013, estimates Superdata Research. Meanwhile, IDC research analyst Lewis Ward projects digital sales on video game consoles will surpass packaged discs by 2019.

Grand Theft Auto V, released in Sept. 2013, has made more than $120 million from in-game sales of weapons and other perks, the firm estimates. "This is a huge deal," says Superdata CEO Joost van Druenen. "If they can pull it off, that means it is legit and gamers are comfortable with this model. More titles will do this."